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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Stock Market On the Edge of Something Big

Stock-Markets / Stocks Bull Market Jun 11, 2009 - 05:15 PM GMT

By: Q1_Publishing

Stock-Markets

Best Financial Markets Analysis ArticleI wouldn’t believe it unless I saw it myself.

After seeing it though, I’ve felt more confident than ever that the markets will be able to hang onto recent gains and add more over the next few months. Let me explain.


Every six months, hundreds of CEO’s, investors, and commentators focused on the microcap stocks on the TSX Venture Exchange gather in the lovely city of Vancouver, Canada (your editor’s part-time residence) for a conference.

It’s one of the largest conferences for junior resource stocks in the world. There are a lot of happy handshakes – even more so in a market like the TSX Venture Exchange where hope and greed are propelling junior stocks higher every week.

There’s a lot of salesmanship. After all, it takes a lot of work to convince someone why some plot of land with a lot of magnesium in it in Kazakhstan is better than another plot of land with magnesium in it in Peru.

There are a lot of fun and interesting people to meet there too. It’s a very Libertarian, anti-government, pro-liberty event and it’s something worth seeing – at least once.

But the thing is everyone there is always looking for the “next big thing.”

In past years the next big thing has been the more obscure metals/elements like uranium, molybdenum, potash, or tungsten. This time I was expecting a lot of folks looking for lithium projects. Or rare earth metals. Or manganese…maybe. All are plays on hybrid batteries.

There’s always something “new” and there’s always a buzz. Even six months ago, when it looked like the financial world was on the verge of collapse, attendance was actually up. Gold and silver were the hot topics.

So this time around I’d expect there to be something exciting.

But there was nothing. In fact, there was nobody there.  And it’s the poor attendance that has me so excited about what the junior resource stocks will do in the months ahead.

Could it get Any Better?

Think about what has happened in the world in the past few months.

The Federal Reserve has publicly stated it is buying Treasury bonds at auction (a.k.a. monetizing the debt).

The U.S. government is facing its largest deficit in history.

Congress and the Executive branch are reaching deeper into private business dealings than ever before.

That’s just for starters. There is still legislation pending on cap and trade, semi-socialized medicine, and even discussion of a European-style value added tax (the equivalent of a national sales tax). If it goes the way the European V.A.T.’s have gone, we could be looking at an 18% to 22% tax on practically everything.

Also, we are likely only a few weeks away from the launch of the Public-Private Investment Program (PPIP). If you recall, the PPIP is the scheme where the U.S. Treasury (via TARP) and five select private investors (still don’t know who?) put up about $100 billion to buy $500 billion in Legacy assets with $400 billion (hot off the Fed’s presses) and all guaranteed by the FDIC. No one talks about it much anymore, but according to Financialstability.gov the program is still a go.

Then there’s the stimulus spending. This, if President Obama is going to create the 600,000 jobs he recently promised quickly, is going to have to get doled out fast.

It’s creating the perfect environment for junior resource stocks to soar. It’s tough to imagine a much better scenario.

This level of government spending and money printing has created massive inflation every time in the past 150 years. For instance, in our analysis of why inflation will win out over deflation the inflation rates that followed these levels of deficit spending (Civil War, WWI, and WWII) were annual rates between 15.7% and 50.3%.

This is the type of environment where investments in real assets perform exceptionally well. And when real asset stalwarts like the major gold miners and oil stocks do well, as they have been, the junior mining stocks eventually follow. And when they begin to follow the upward path, they can catch up very quickly.

Still though, there were very few people who seemed to care enough to come to the conference.

Contrarian Investing 101

That’s why I’m becoming more and more bullish on these junior penny stocks.

As we looked at the other day in The Greenest Shoots of All, everything is in place for a big run in these small penny stocks.

Oil prices have recovered quickly. The price of gold, silver, copper, agriculture commodities, and most other real assets has done exceptionally well too. With the exception of natural gas and a few other more obscure metals, real assets have been doing remarkably well.

Inflation is coming and, although everything we’ve found points to inflation coming much farther away than most people expect, there will be some pretty big consequences for the economy. But the important thing is to get in early and be prepared.

This is the time you want to buy these types of stocks.

But hey, that’s part of investing successfully. You have to buy what no one else wants. It’s the first step in buying low and selling high.

All this just shows investors are still very, very timid. Frankly, I don’t blame them. If you’re a few years away from retirement and your retirement account has been cut in half, it’s a natural reaction.

Of course, the “natural” thing to do when it comes to investing is to run with the herd. It feels safe. You have a bunch of people around who agree with you.

The World is Not Coming to an End

Of course, that kind of mentality couldn’t be more dangerous.

Right now, the majority of investors still believe the whole financial world is coming to an end or they’re waiting for a pullback to buy.

To be fair, with the problems facing commercial real estate, interest rates, and the value of the US dollar, it’s tough to imagine how there is any way out of this mess. Over the long term, the only solution is a painful reallocation of resources. That will involve shutdowns of factories making things people don’t want. There will be a sharp (and natural) period of unemployment as workers are forced to learn new skills and find jobs in fields where there is a need. And plenty of other painful steps necessary to right the economy.

Over the short term though (the next year or two), there are so many other factors which can override the long-term factors. That’s why we focus on the strong bearish sentiment that’s still in the markets, the massive amounts of government spending getting pumped into the economy, and the $3.7 trillion of cash still in money market accounts. Everything is in place for the markets to continue on their way higher.

The key is the $3.7 trillion sitting on the sidelines. All of that doesn’t have to go back into the stock market to keep this rally going. Frankly, all of it is not going back into the stock market. Part of it will be spent by consumers.

The effects of it will be two-fold. First, the part that does go into stocks will keep this rally going. The other part will go a long way to keeping the economy going.

This is just another reason to be buying stocks now. Most investors are still waiting on the sidelines waiting for the next leg of the downturn to buy in or avoid the next collapse.

In the end, nothing in the markets rarely happen when everyone is watching for it. If this poorly attended conference is any indication, there is still a lot of life left in this rally. It will end, but that’s a long time away.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

P.S. That’s not the case for agriculture though. The way things are shaping up, there could be a tremendous short-term opportunity in agriculture on top of the exceptional long-term prospects. More to come in the weekend edition of the Prosperity Dispatch.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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